Oracle Stock Has Lost More Than Half Its Value in 6 Months. It May Finally Be Time to Buy.

Shares of software and cloud infrastructure specialist Oracle (NYSE: ORCL) have taken a severe beating recently. Over the last six months, the stock has plummeted, falling more than 50% as of this writing.

The tech stock's decline comes as investors fret over the company's staggering capital expenditure plans and the debt required to fund its aggressive artificial intelligence (AI) data center build-out.

But it's not like the underlying business is struggling. In fact, Oracle just reported another quarter of accelerating top-line growth and surging profits.

So, with the underlying business seeing accelerating growth and a soaring backlog even as its stock gets hammered, is this a buying opportunity?

Imag source: Getty Images.

Accelerating growth and a massive backlog

Oracle's fiscal third-quarter results highlighted a business that is firing on all cylinders. The company's total revenue was $17.2 billion -- up 22% year over year. This marked a meaningful acceleration from 14% year-over-year growth in fiscal Q2.

And this growth was highly profitable. Oracle's earnings per share rose 21% year over year to $1.79.

The quarter's strength was largely driven by the company's cloud operations. Cloud infrastructure revenue was $4.9 billion, up 84% year over year. This represents a rapid acceleration from 68% growth in the prior quarter.

Even more encouraging than the quarter's strong financial performance is the massive pipeline of future business Oracle has secured. The company's remaining performance obligations (RPO), or contractually obligated revenue that hasn't yet been recognized, skyrocketed to a staggering $553 billion -- up 325% year over year.

This uncanny backlog is the result of large-scale AI contracts. In addition, many of the contracts behind this swollen backlog are structured so that customers prepay for equipment or supply their own hardware.

"Most of the increase in RPO in Q3 related to large scale AI contracts where Oracle does not expect to have to raise any incremental funds to support these contracts," the company noted in its fiscal third-quarter earnings release, "as most of the equipment needed is either funded upfront via customer prepayments so Oracle can purchase the GPUs, or the customer buys the GPUs and supplies them to Oracle."

This dynamic is crucial because it means Oracle may not have to bear the entire financial burden of its infrastructure expansion.

For investors, a backlog of this magnitude is incredibly valuable. It provides management with significant visibility into its growth profile and gives investors an idea of how growth could unfold over time. Further, as these customers lock in capacity for long-term AI training and inference workloads, Oracle is solidifying its position as a central pillar of the AI revolution.

A compelling valuation

The main reason for the stock's recent weakness is likely the cost of fulfilling this massive backlog. Management has guided for about $50 billion in capital expenditures for fiscal 2026 to support its surging AI demand.

That is an enormous capital outlay, and it understandably has some investors worried about the company's balance sheet, its financing plans, and its near-term free cash flow, or its cash flow from operations less capital expenditures.

But the stock's brutal sell-off over the last six months has arguably already priced in these risks.

Following the stock's decline, Oracle now trades at a forward price-to-earnings ratio of about 19. This is a very reasonable valuation for a company growing its top and bottom lines by more than 20% year over year.

For context, the broader market trades at a slightly higher forward price-to-earnings ratio of 21 as of this writing. The fact that a fast-growing, highly profitable software and infrastructure giant like Oracle is trading at a discount to the broader market averages highlights just how far the pendulum of market sentiment has swung. And the stock's pullback has arguably helped price in risks related to Oracle's capital expenditure plans.

But if Oracle can successfully convert its half-a-trillion-dollar backlog into recognized revenue while maintaining its profitability, the stock's current price will likely look like a bargain in hindsight.

While the heavy investment cycle introduces some near-term risks and capital expenditure concerns, the underlying demand for Oracle's cloud infrastructure is undeniable. I believe that for long-term investors willing to stomach some volatility, now is a great time to buy Oracle shares.

Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Oracle. The Motley Fool has a disclosure policy.